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How Sustainable Is Earnings Growth?

Monday, May 21, 2018 11:50

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Not very and will leave the calculation for the entire stock market to th stock anlysts. Here’s why:

Just glancing over WalMart’s latest earnings release from the week, we see two one-off macro factors that helped WalMart’s earnings in Q1, and most likely the same for other companies:

Foreign exchange rate effect
The tax cut

Note that almost 40 percent of WalMart’s y/y revenue growth in Q1 was due to the exchange effect, and over 1300 bps of tax cut relief. That is one-offs.

Though the dollar was weaker in Q1, it has rebounded sharply in Q2. Thus a deleterious exchange rate effect is coming to Q2 earnings. Not to mention higher gas prices and interest rates, which will negatively impact the non-energy and non—financial sectors.

Source: https://macromon.wordpress.com/2018/05/21/how-sustainable-is-earnings-growth/

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